CVS to pay $20 million for misleading investors, improper accounting

CVS: For all the ways you care... about things other than proper accounting practices.

CVS Caremark Corp. announced on April 8 that it will pay $20 million to settle Securities and Exchange Commission (SEC) accusations that it defrauded investors during a 2009 debt offering and conducted improper accounting through its acquisition of Longs Drug Stores Corp.

The SEC said that CVS, while marketing $1.5 billion in bonds in 2009, failed disclose that the company lost significant Medicare and contract revenue streams in the company’s pharmacy benefits manager business. Some of the revenue lost came from former Caremark customers; CVS purchased Caremark in March 2007.

“CVS broke faith with investors,” Andrew Ceresney, director of the SEC enforcement division, said in a statement to Reuters. “The intentional misconduct by CVS breached the core principle of fair and accurate reporting of financial performance.”

However, misrepresenting lost revenue wasn’t the company’s only misdeed. The SEC also claimed that CVS improperly boosted shares of third quarter earnings in 2009 by 11.7 cents per share by manipulating accounting for its 2008 purchase of Longs Drug Stores Corp. This accounting allowed CVS to beat analyst estimates for that quarter.

In addition to CVS’s penalties, Laird Daniels, CVS' senior vice president for international operations and business development, will pay $75,000 for his connection to the Longs accounting snafu. He was also handed a one year accounting ban by the SEC. Court documents quoted Daniels as saying he was looking to turn the Longs purchase into a “good guy” rather than a “bad guy” for CVS in terms of profitability.

Neither CVS nor Daniels has admitted to any wrongdoing in the SEC’s enforcement action.